Slow & certainly not steady

China has been far more successful in reducing poverty and is bringing more people under its welfare schemes. India’s record is pitiable, and explains why we consistently falter as compared to our neighbour

Like most developing countries (emerging economies included), China’s own defined poverty line was much lower than the one defined by World Bank. But China has made an attempt for reparation and to remain close to the World Bank’s estimate of $1.25 a day – by raising the poverty threshold by 80% from 1,274 yuan a year in 2009 to 2,300 yuan a year (equivalent to $362)! This historic decision has raised the number of poor to 128 million over just 26.88 million last year and is a volte-face from the earlier stand of deeming just 2.8% of the rural population to be below the poverty line (US has 15%).

However, there is a very interesting note to this move: the new poverty line applies only to the rural population! Probably it is a ploy to stem massive migration from rural to urban centres by providing them a spate of benefits in economic and social spheres; thereby restricting them to their ancestral places.

The addition of poor people to the poverty line is complemented by a buoyed budget towards the poverty reduction fund, which rose by 21% and touched 27 billion yuan. Therefore a new and bloated target group has been defined wherein the Chinese government will set its focus on to the deliverables that will lift them out of the clutches of poverty. They target alleviation of poverty as the core objective, which will also help bridge the widening income gap.

As the government in China is an authoritarian regime, it cannot afford such economic disparity that can eventually lead to a political and social backlash in the near future. Recently, Hu Jintao, President of China, categorically emphasized the government’s strong intent to provide not only food and clothing but also bring the major social sector factors like compulsory education, health care and proper housing to poor doorsteps by the year 2020 [sound quite ambitious?] in a keynote speech. China’s veritable intent towards eradicating the evil of poverty in the country is worthy of applause – as it is a rare instance of a dictatorial regime providing better governance than most of the democracies in developing (and even some developed) economies!

India, on the other hand, is a glaring example of sloppy policy making. An embarrassed Dr.Manmohan Singh had to show a bold face while defending the Planning Commission’s bummer — an irrational new definition of the poverty line for India — the measly Rs.32 per day for urban population and Rs.26 a day for rural population. This new poverty line has been rejected by all and has become a laughing stock for political opponents of the government! While China is embracing more people under their network of social and economic welfare, India is doing just the opposite! Stripping more and more people from welfare schemes can be the only rationale to explain such a ridiculous act! In hindsight, India could also be trying to hide the 400 million who still live on less than $2 a day!

Unlike India, China has reduced poverty in the real sense and not just by merely manipulating the poverty line, with spectacular results! It has brought an umbrella of welfare initiatives for the needy, generated employment, brought in agricultural reforms, built advanced infrastructure, provided facilities of microfinance, and attracted investments in the manufacturing and service sectors — thereby lifting almost 500 million people out of abject poverty. China has been successful in reducing the dominant role of agriculture in providing employment by creating alternative source of livelihood even in the rural areas. Advanced technologies used in farming have ushered in higher productivity for the farmers: a cornerstone in reducing poverty in its vast rural belt. This has been made possible because of crisp and transparent public spending in agricultural research, infrastructure, education, public irrigation and micro-credit facilities! Uniform distribution of public funds was eventually accomplished, even though there were hiccups in between. And most importantly, capital formation resulting from a mercurial rate of investments shot up to 45% of GDP. The domestic savings spurt is the direct consequence of that and it has further gone a long way towards implementing poverty eradication policies. Since the opening of its economy in 1978, fund flow has been thick and fast, especially in the manufacturing sector. The sector has a corroborated growth rate that can catch up with the best in the world at 9.9% in 1980s and 10.3% in 1990s. Manufacturing sector growth between 1980 and 2002 was a humongous 11.3% while service sector was close on its heels with 10.4%.

It is paradoxical that worldwide media attention is focused on China’s manufacturing sector and largely ignores its service sector as a non-entity – when in reality, the latter has registered a growth rate, which surpasses India’s much famed services boom! Another crucial Chinese model that succeeded and is a subject of a case study is China’s rural industrialization led by its rural entrepreneurs called Township and Village Enterprises (TVEs) that contributed generously for the country’s rural prosperity. This growth story is not only circumscribed to local area development, but also has forward linkages with agriculture and social sector development! The model has raised rural income, created opportunities outside agriculture & reined in rural migration.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School
IndiaManagement Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting

Second time lucky but determined not to lose first spot again

When GM went broke four years ago not many gave it a chance to spring up a fight and come back from financial rehab. Those Cassandras are now eating their words as the former lumbering auto giant strikes back with a vengeance.

A lot has changed for General Motors (GM) since it went adrift in rough seas that threatened to dash its corporate ship against dangerous waves just four years ago. In the summer of 2008, about a year before GM became a ward of the state, its chief executive Rick Wagoner was desperate to catch at straws in a futile bid to avert his company from going belly up. The financial results for the 2008 spring quarter left no one in doubt about GM’s bleak prospects: a $15.5 billion loss, its third worst in a century. GM’s revenue in North America had fallen $10 billion — a breathtaking 33% — from the year-earlier quarter. And for the first time, after donning the mantle of being the No. 1 car maker in the world from Ford in 1931, GM lost that coveted position to Toyota. In the midst of a significant downturn in the American and global economy, Toyota raced ahead of GM in global car sales, selling about 620,000 more vehicles in 2008 than GM’s 8.35 million.

But the worst was yet to come. Finding itself at the end of financial tether, Wagoner flew into Washington D.C., cap in hand, to ask for $10-12 billion of easy loans from the Federal government to bail out his cash-strapped company. But his demeanour - flying in a private luxurious jet at the company’s expense - rubbed many in Washington the wrong way. Sensing that GM was fast on its way to go kaput, the Obama administration had the good sense to push through some painful but imperative decisions. In quick time Wagoner was booted out and the doddering company was offered a lifeline in the form of government bailout funds after being put under bankruptcy court protection. GM - which hadn’t made a profit since 2004 - declared in its filing that it had $172 billion in debt and $82 billion in assets. Its market capitalisation, having plumbed the depths of investor confidence, stood at $2.21 billion in March 2009 when Wagoner departed. The value of GM stocks had cratered to $3.62 as against the trading levels of above $70 when Wagoner had joined as CEO in June of 2000.

Wagoner’s exit did not exactly move GM away from over the hump. Through the initial months of restructuring, the company became a revolving door for a succession of CEOs who drifted in and out without leaving any mark or making an impression. It was only after Daniel Akerson - GM’s fourth CEO in just under 18 months - arrived in September 2010 that the company once again rediscovered it automotive mojo and competitive gene. Since then the automaker, which had lost about $100 billion in the years before its 2009 bankruptcy, has been consistently profitable. In the latest quarter (Sept-Dec. 2011) for which results are available, GM made about $1.7 billion in profit, besides having already repaid $24.1 billion of the $49.5 billion in federal government aid it had received. But the biggest icing on the cake was that GM’s worldwide sales rose 7.6% to 9 million vehicles in 2011, helping the auto major to once again grab pole position as the world’s No. 1 car seller (a position it had ceded to Toyota in 2008). That’s surely a remarkable achievement for a carmaker that looked completely down in the dumps until two years ago.

The uptick in sales came about on the back of the strong showing by its flagship Chevrolet brand, which sold a record 4.8 million vehicles last year (even more than total sales of brands like Nissan and Honda). European carmaker Volkswagen was the second-largest seller of vehicles worldwide whose sales rose 14.3% to 8.2 million vehicles followed by the likes of Toyota, which expects its 2011 sales to come in at around 7.9 million vehicles, down about 6% from 2010. Analysts attribute GM’s recent swell performance to its strong US and China operations. Being the two biggest markets for carmakers today, GM has done well to wedge the China market open in its favour by collaborating with its local partner (SAIC Motor Corp), a strategy that has paid off handsomely. In 2011, GM sold more than 2.5 million vehicles in China, registering an 8.3% increase from the previous year. In its North American home market, GM clocked sales of over 2.5 million vehicles at a 13% growth trajectory last year.

According to Jeremy Anwyl, Vice Chairman of Edmunds, an automobile industry information website, GM was lucky to have come out of its bankruptcy and consequential restructuring at a time when global market conditions were once again turning favourable for the automobile industry. “The bankruptcy allowed GM to cut costs and fundamentally restructure its operations from a cost and incentives perspective. GM came into a growing market with a lean inventory and, at the same time, it introduced impressive new products such as the Chevy Cruze.” What also helped GM pip Toyota to the post was the fact that the Japanese car maker could not exploit the tailwind of growth and the resurgence in the global car market as it was badly kneecapped by supply-chain and production glitches at its plants, arising due to the double whammy of the tsunami and earthquake that struck Japan early last year.

But despite making the most of the opportunities in the past year, the real test of GM’s ability will be to consolidate and expand its market share without diluting its profitability. With Japanese car makers like Toyota and Honda emerging from the shadow of last year’s contretemps and players like Volkswagen and Ford stepping up on the throttle, can GM continue its alpha dog run in the industry? Already, Toyota has come out with its sales forecast of 8.48 million units for the current year, Volkswagen is pulling out all the stops to top the industry league tables by 2018 and Ford is on track taking its One Ford strategy to the next phase that might give it a fair shot at becoming market leader. In other words, GM is up against the most competitive automobile market in its history and its ability to continue delivering stellar results is bound to come under increasing strain. “Ford, VW and Hyundai are some of the toughest players there are and they lead by dint of their product line-ups. GM has to push harder to get ahead of the curve to compete head to head with these companies in all market segments globally,” says Laurie Harbour, President, Harbour Results, an industry analyst.

Read more..........

Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School
IndiaManagement Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting

“We need to update our education system for the long term”

Raman Roy, the man termed ‘the father of the India BPO revolution’, speaks candidly to B&E on what it will take for India to keep its leadership position intact in the sector

Raman Roy is better known as ‘father of Indian BPO’. He started the BPO project as a lab case while working for American Express in the mid-80s. The idea was to showcase to the world how quality work can be done at a cost-effective price from India. Since then he moved on to set-up leading BPO companies like Genpact and Spectramind. His latest obsession these days is promoting high-end outsourcing work at his new venture Quatrro. He talks to B&E’s ONKAR PANDEY, on where he sees the industry headed:

B&E: What was the idea and vision that you had when you almost single handedly started out the BPO operation in India at American Express in late 80s?
RR: When I started 25 years ago, nobody knew that it would become the phenomena that it has become. That time, I was only trying to do the right thing for my employer American Express; telling them that it can be processed from India. The aim was to showcase that the Indian workforce was equally competent and capable as the international workforce, and not about becoming an industry and creating companies to do such stuff. As we groomed it, it became an aspect of our cost-saving, higher quality, an aspect of revenue and job creation potential. All those were the learnings we acquired.

B&E: How do you look at the evolution of the industry over these 25 years?
RR: The Indian BPO story started in the mid-80s when we did the experimentation. And it became a buzzword by the turn of century, with companies like SpectraMind and IBM Daksh taking the lead. Over that initial period, it grew in its ability to be able to offer jobs and create a disposable income. We actually created a class of people for whom it created a disposable income and their family’s income has gone up. Even today I met somebody, who was telling me that in his village, the average income was less than Rs.2000. And he sends home Rs.4000 today out of his earning of Rs.15000 and his family is doing very well. All such aspects came into prominence, because everyone saw the jobs being created and saw the impact that the industry was making on its workforce. But then we started to only showcase what can be done from India, and not on job creation.

B&E: The industry has gone through a phase of growth and seems to be slowing down now. How do you look at the current state of the industry and the growth model here onwards?
RR: I think that the aspect of labour arbitrage is a reality now. And that is a business model. A commoditised product is a business model. There are people who are making money from sale of sugar, wheat and ghee like commodities. The commoditised model is a low cost model, where the winner is the lowest cost provider. And there will be parts of this industry that will continue to operate in that segment, and continue to be cost competitive and have the quality too. And on the other side, there will be people who will bring in domain knowledge, technology and capability and take it to what we call the KPO industry today. So both of these will co-exist, and put together, it will be at a size and scale where 20-30% growth rate per annum will be a non-issue.

B&E: Talent crunch, high attrition rates and decreasing cost-competitiveness of Indian BPO companies vis-a-vis Philippines, Vietnam, China, et al are a cause for concern. Is the Indian BPO dream turning sour?
RR: The reason why these countries came into being was because there is redundancy that is needed. Secondly, we don’t have enough people. If we have 100,000 more people today, the BPO industry will absorb them in 20-30 days. Attrition is a symptom of the talent crunch. Employees are not leaving the industry to join other industries. These are mostly company level attritions, due to a shortage of people. The industry attrition is 5 -7% due to things like night shift, marriage, change of cities, et al; and that is a good and healthy attrition to have. When we put an advertisement in the paper, we get 8000-10,000 applications, but we recruit only 200. So there is lot of demand for the industry. The quality of graduates produced in our universities doesn’t meet the international needs. In fact, many a graduate are working as drivers in call centres, and that is an injustice to their qualification. If talent supply increases, the attrition problem will go away.

B&E: How do you see the change of guards in the industry, with visionaries giving way to process managers?
RR: Large independent players continue to lead. Evolution and change in leadership is a given in any industry. Today, we are almost $15-16 billion dollar industry. It’s bigger than Bollywood, and even employs more people. The priorities are changing and the leadership is undergoing a change; it’s a new phenomenon in the world. In old days, there used to be one employer. They never thought of changing companies due to lack of opportunities. Now, there are more companies and people change jobs more frequently. So it’s an evolution of the job market in the country. The government today likes to listen to us unlike the early days. Even the media listens to us. The industry is growing at 30% CAGR, so we can’t say that the new leaders are not doing effective work. They are very good.

B&E: How did the slowdown affect the BPO industry? Did the companies have to re-adjust their growth model?
RR: The slowdown impacts discretionary work. A lot of BPO work is non-discretionary (almost 80%). For instance, if one has to get a call he will get it anyway. A very small sliver of the industry is discretionary work that goes down due to cost-cutting. So slowdown hasn’t affected the industry, though growth could have been more robust

.

Read more..........

Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting

A new beginning: Bajaj sees more bang in bike brands

How Bajaj won and lost in the scooters segment only to come from behind and learn the art of manufacturing and marketing motorcycles.

In late 2009, when Rajiv Bajaj, MD, Bajaj Auto, took the decision to exit the scooters segment, everyone, including his father Rahul Bajaj, Chairman, Bajaj Auto, missed a beat. For Bajaj Auto, the country’s second-largest maker of two-wheelers, whose name was synonymous with scooters in India for decades, the decision seemed to go against the grain of conventional wisdom.

In fact, the company’s tryst with scooters goes back decades. In the 1960s, Bajaj Auto got a manufacturing license from Italy’s Piaggio and began manufacturing and selling scooters under the brand name Vespa. In the 70s, when Piaggio refused to renew its license, Bajaj began manufacturing under its own brand. The company introduced Bajaj Chetak, its first home-produced scooter brand, which went on to become a huge success and was literally the mode of private transport for the middle and upper middle class Indians until 1998-99. The brand had the persona of a “work horse”. Its reasonable price and low maintenance cost made the product a huge hit and buyers had to fork out a hefty premium to own one, that too after a long waiting period.

Till the 1980s, Bajaj was a value for money brand, churning out scooters with names like Chetak, Super, Priya et al. They all looked the same and any one could tell they belonged to the same family. In fact, Bajaj had various brands under its umbrella and their brand identity remained “Humara Bajaj”. In the absence of any outside competition, the Bajaj brand name flourished, with Chetak ruling the two-wheeler scooter segment. Bajaj’s pithy but pitch-perfect base line, “Humara Bajaj” struck a chord in every Indian heart while the title song of “Buland Bharat Ki Buland Tasveer” added great value to its scooters.

During the ’80s and ’90s, Bajaj launched quite a few variants of Chetak and other newer models. But deviations from the main Piaggio design did not always prove successful. The failures started with the Bajaj Rave that the company promoted as a step-through design for an earler model, launched in the early 1990s. Next came the Stride, which was a more plasticky Chetak. The Bravo, too, was derived from the Chetak but did not go well with buyers. The Legend, which was a four stroke version of the Chetak, bombed miserably. Next in line was the Chetak 4 stroke, which again failed to stir the market. The death knell of Bajaj’s scooter business was sounded when the company officially stopped the production of its flagship Chetak in December 2005. In bringing the curtains down on Chetak the company said that the product no longer had any relevance to the customer, thus ending the saga of ‘Humara Bajaj’.

By the mid 80s and 90s, the two-wheeler segment had started shifting to motorcycles. Scooters were no longer the attractive option they once seemed to be. Motorcycle sales started rising in 1990’s and by 1999 motorcycles overtook scooters in sales for the first time. It was a clear indication of shift in consumer preference. Hero Honda, which was established in 1984 by Hero Group, and Honda Motor Corporation of Japan had been reaping the benefits of this trend. Bajaj entered the motorcycle space in 1986 with the launch of Kawasaki Bajaj KB100, in a tie-up with Kawasaki of Japan. But the company found itself lagging behind players such as Hero Honda, Yamaha and TVS, who dominated the market and had carved up the business amongst themselves. In order to succeed in the motorcycle segment it was important for Bajaj to shed its brand image from being a scooter manufacturer to a motorcycle maker.

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Source : IIPM Editorial, 2011.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Proves Its Mettle Once Again.....
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM RANKED NO.1 in MAIL TODAY B-SCHOOL RANKINGS
Planman Technologies

MONEY BACK GUARANTEE

Congress needs to stand and sign up guarantees

It’s a classic case of a brand going complacent with success and breaking the faith of people. In fact, today the damage is too deep and too severe to resurrect by mere promises.
Congress needs to stand and sign up guarantees – money back guarantees – like we do on brands. They need to payback if they don’t deliver on what they promise the people. And they need to come upfront and say that in as many words. Only then will the intent of the brand ever ring true.
Further, they need to launch a campaign where the leaders of the party sign legal agreements with people and where they come back and promise on signed sheets of paper. The reason is simple. In the last two years, the corruption that has been pulled out has left everyone stunned. They don’t stand a chance with flowery sweet talk any more. They need a hard hitting image change.
It’s like we say about the proof of the pudding. If you see in advertising as well, the consumers today do not have the patience for crap & fluff. They want what you have to give told to them. Today, the consumer has the power – power of money, power of choice. We are learning this curve everyday. Gone are the days when sweet little happy tales were enough to lure the consumer. Now they want the truth. Or they move on and that’s it, because they can move on.

Congress needs to understand that they need to respect the people’s faith or they are doomed. The competition, just like in marketing, is sharpening their teeth each day and the Congress, instead of being proactive, is only being reactive. It needs to raise its head and say what it means. And that can only happen if they put their money where their mouth is. There are no two ways.
They don’t get infrastructure right; then they guarantee to pay back an ‘x’ amount to the people. They don’t improve the conditions of farmers; then they need to pay back to the farmers. That is the communication they should be doing. Will they ever do it? It’s doubtful. But should they? Most definitely, yes.

There always comes a time in the life of a brand, which demands from it to that it cares about the people who have stayed loyal to it and that it cares about what it delivers. So it’s time. Pay back. Or go back.

For more articles, Click on IIPM Article

Source : IIPM Editorial, 2011.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Proves Its Mettle Once Again.....
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM RANKED NO.1 in MAIL TODAY B-SCHOOL RANKINGS
Planman Technologies

BUILDING A GLOBAL BRAND FROM THE INSIDE OUT

As an organisation grows beyond its home borders, its leaders must be sure to export the company’s culture as well as its products

4ps Business & Marketing, in a strategic alliance with the new york times service, presents a column by howard Schultz, Chairman, President and CEO of Starbucks corporation

Great global brands do not succeed across cultures because they are cool or trendy. They succeed because they remain relevant to people inside as well as outside the company – regardless of where they were founded or where in the world they operate.

That’s why, as an organisation grows beyond its home borders, its leaders must be sure to export the company’s culture as well as its products.

This has been Starbucks’ strength as well as our greatest challenge since we first decided to open a store outside North America in 1996. Back then, none of our senior leaders had any international experience. In fact, we hired a consultant who came in and essentially told us that our plan to expand into Japan wasn’t going to work. Our no-smoking policy for our stores would be a disaster. Japanese customers wouldn’t walk around the streets with coffee in a paper cup. But our conviction that we had something universal to offer customers in addition to our coffee – a place to personally connect with others – pushed us forward, and we opened our first store in Tokyo.

Fifty-four countries later, our conviction has not wavered, yet more than at any other time in our history, we are asking ourselves how to remain relevant as times change.

For our coffee and our food, we have learned that each should reflect regional tastes and traditions but not deviate too far from our core. A vanilla latte in Zurich should taste the same as one in Chicago. In China, Starbucks stores would probably not sell noodles for breakfast; but we would – and do – include popular Chinese flavours such as sesame and green tea in our Frappuccinos. People don’t want from us what they can get down the block, but they appreciate our efforts to put a local twist on a muffin.

Even more important than our products, however, are the company’s guiding principles of respect and dignity, which fuel the personal connections we try to make with customers.

Instilling such internal values beyond a company’s home country is crucial, but it does not come with a handbook of instructions. It’s a subtle task, and there are concrete steps we’ve learned along the way that hold true to any company. These include dedicating enough resources from the outset to put the right culture in place, and launching a new market under the guidance of long-term employees to ensure that like-minded talent is hired. Local leaders can then model the behaviour they want their people to emulate, celebrate behaviours they want to perpetuate and listen to what is important to the people they hire.

At Starbucks, spreading our values is critical because it allows our partners (our terms for employees) to deliver our competitive advantage in every market in which we operate.

Let me be more specific. Starbucks’ value to its customers has never been just about great coffee but instead, it has been about delivering a great experience AROUND our coffee. In our stores this comes across in many ways; mainly the familiar relationship that develops when a barista gets to know her customers by name and remembers their favourite drinks, where they work or their kids’ ages.

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Source : IIPM Editorial, 2011.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Proves Its Mettle Once Again.....
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM RANKED NO.1 in MAIL TODAY B-SCHOOL RANKINGS
Planman Technologies

Why the apparel industry is in a flux

Hopes of getting the cash registers ringing this festive season remain slim as high prices might deter consumers from indulging on clothes.

The festival season is already upon us but apparel retailers hardly look enthused. There is apprehension in the industry that consumer spending on apparel may take a hit despite the festive sentiment ringing in the air. Apparel sales in the country have been in a slump by about 20% since March, forcing many brands to start end-of-season discount sales a fortnight earlier than usual. Companies attribute the fall in demand and lower apparel sales due to soaring cotton prices and the mandatory 10% excise duty hike on branded garments that was introduced in this year’s Union Budget. Although cotton prices have softened to Rs 45,000 a candy (one candy is equal to 356 kg) from Rs 64,000 earlier, the change will not reflect in the retail price during the festive season as companies placed their orders six months ago. “The merchandise to be sold during this festive season was crafted when cotton price was at its peak. Besides, the excise duty levy announced in the Budget will play itself out in the market now,” says Atul Chand, CEO, ITC Wills Lifestyle. To offset higher raw material prices, Chand says that garment makers will have to increase apparel prices by 10-15% over the next two months. Echoing similar apprehensions, India’s largest listed retailer, Pantaloon Retail, warns that rising cotton prices and input costs are likely to lead to an 18% price hike on fashion labels next season, and that inflation will continue to be a permanent reality. “We may see sluggish apparel sales for high-priced garments in the coming months,” says Kailash Bhatia, CEO, Pantaloon Retail.

The festival season is crucial for the business of apparel retailers as it contributes around 60% of its sales and dictates the buying pattern of firms. Retailers who have already ordered inventory for the coming festive season will in a scenario of falling volumes be forced to sell the extra inventory at marked down prices later on, which will obviously reduce margins and profits for the year. To cut down their losses, many retailers have postponed fresh supplies and reduced further orders. Others are closely scrutinising fresh store openings as same-store sales growth for many retailers has decelerated to single digit in recent months. “Volumes have dipped dramatically at fashion retailers and this is unusual for an industry that’s used to value and volume growth,” says Nikhil Chaturvedi, MD of Provogue (India). In order to cope with the challenges, many retailers are turning their focus to managing inventories and preventing a build-up in costs.

However, there are quite a few retailers as well who are looking forward to the festive season to bring in fresh cheer. Harkirat Singh, MD, Woodland, says: “For us sales have been buoyant over the past four-to-five months and the sentiment looks good. We in Woodland have always believed in giving something extra to our customer and this festival season will be no exception.” According to Confederation of Indian Textile Industry (CITI), the apparel industry is expecting a higher sales growth of 25% in both value and volume terms, during the festival season this year, between September and December. Sales during the festival season — which typically starts with Onam in Kerala — account for almost 35-40% of the annual revenue of a company. So players like Wills Lifestyle from the stable of ITC are planning to increase their retail presence from 77 stores to 90 stores by this year. Not to be left behind, Pantaloon is rolling out three more stores during the festival season. Similarly, Shoppers Stop is focusing on the eastern market by rolling out special festival campaign for the north-eastern cities. Monica Oswal, Executive Director, Oswal Woollen Mills, says: “Depending upon the festival we would be doing different promotional activities across various states as the festival season also marks the beginning of winter and a very busy time for our brand Monte Carlo.”

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Source : IIPM Editorial, 2011.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Proves Its Mettle Once Again.....
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM RANKED NO.1 in MAIL TODAY B-SCHOOL RANKINGS
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